I’ve been looking at arranging Group Income Protection Insurance for my employees. This is to provide cover in case they’re off sick. I was just wondering about the taxation of Group Income Protection and how it works if someone unfortunately needs to claim.
- Nadeem Farid
- Head of Employee Benefits
You pay for individual Income Protection from cash you’ve already paid tax and National Insurance on (i.e. your wages). That means should you need to make a claim, the benefit you receive is normally tax-free.
How HMRC Taxes Business Income Protection…
However, when an employer takes out company Income Protection Insurance, usually it’s a business expense. This means you can reclaim the cost against corporation tax.
In most cases, this makes the benefit from Group Income Protection therefore subject to income tax when an employee claims.
The insurer pays a Group Income Protection claim as salary continuance to the employer. It’s the employers job to distribute this to the worker via PAYE. HMRC then taxes the worker’s benefit just as if it would earned income.
Is Group Income Protection Insurance a benefit in kind?
No. In most cases, Group Income Protection is not treated as a taxable P11D benefit in kind for the employee.
This means there’s not usually therefore any additional tax due as a result of having this protection.